You would normally be considered to be in business for tax purposes if you enter into an activity with the intention of running it as a profit-making business, and if the activity is carried out in a way that shows it has a significant commercial purpose and viability. If you sell products or services online, you need to understand whether you are doing it as a hobby or carrying on a business.
While tax law does not provide a detailed definition of a business, the following ‘business indicators’ have been used by various Courts and Tribunals to determine whether a business exists for tax purposes:
- Does your activity have a significant commercial purpose or character?
- Do you have more than just an intention to engage in business?
- Do you have a purpose of profit as well as a prospect of profit?
- Is there repetition and regularity to your activity?
- Is your activity of the same kind and carried on in a similar manner to businesses in your industry?
- Is your activity planned, organised and carried on in a business-like manner?
- Does your activity have characteristics of size, scale and permanency?
- Would it be true to say your activity is really better described as a business, rather than a hobby, recreation or sporting activity?
These indicators give general guidance as to whether your activity is a business or hobby. If your activity does not satisfy all of the indicators it does not automatically mean that it is not a business. However, it is likely that, if you answer ‘no’ to all these questions, your activity maybe considered a hobby.
If you sell products or services online, you need to understand whether you are doing it as a hobby or carrying on a business. When selling online becomes a business, the income you earn from it is subject to tax. If this is the case, you may also be eligible for tax deductions.
- Did you set up your online sales with the intention of being a business?
- Do you pay for your online-selling presence?
- Is your main intention to make a profit?
- Do you make repeated or regular sales?
- Do you sell your online items for more than cost price?
- Do you manage your online selling as if it were a business?
- Is what you are selling online similar or the same as what might be sold in a ‘bricks and mortar’ business?
Contact the team at South East Access for more information on business activity Vs a hobby interest.
South East Access
Suite 25, 44 Deering St Ulladulla 2539
Phone: (02) 4454 4444
Fax: (02) 4454 0400
Office hours are 8:30 am to 5:30 pm